Herd Behavior and its Effect on the Stock Market: An Economic Perspective

Abstract

This study aims to shed light on the concept of herd behavior and its impact on the financial and stock markets, on which some studies were conducted.Herding means following the decisions of others rather than having a unique or different decision taken by a certain group.In this regard, herd behavior falls into two main disciplines: psychological and economic.The current study presents the economic point of view regarding herd behavior, its impact on the stock markets, and how it can cause changes in stock prices by either going up or down; its effect during the financial crisis, and the role it may play during the creation of economic bubbles.The study shows that herd behavior has an apparent impact on the status of the stock markets and the values of prices.Deeper research is recommended to be conducted concerning aspects such as the impact of culture, the region, the country, etc., on this type of economic behavior.

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